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University of Sheffield, November 2010 Cloud Computing Contracts and Services The University of Sheffield: School of Law Cloud Computing Contracts and Services: What’s Really Happening Out There? Professor Christopher Millard Centre for Commercial Law Studies c.millard@qmul.ac.uk Some key questions we will tackle today… • What is cloud computing? • Why is cloud computing such a hot topic? • Is cloud computing ‘mature’ and is it ‘safe’? • Who is responsible for data in clouds? • What should you watch out for in ‘off the shelf’ cloud contracts? • Can you negotiate custom deals for cloud computing? • Whose laws apply if you have a cloud dispute? • Can you control where your data are stored in clouds? • What’s the forecast…. “Cloudy but bright”? • And finally… some practical tips for managing cloud-related risksChristopher Millard 1

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University of Sheffield, November 2010 Cloud Computing Contracts and Services What is cloud computing? • Cloud computing usually involves the provision of scalable IT resources (such as data storage, application hosting, etc.) on demand, delivered via the Internet • There seem to be as many specific concepts and definitions as there are cloud vendors, consultants and researchers but a common starting point is often this Gartner definition: “A style of computing where scalable and elastic IT capabilities are provided as a service to multiple customers using Internet technologies” • Prominent examples include: • Amazon Web Services • Gmail and GoogleApps • Microsoft Hotmail + Windows Azure • IBM Smart Business + CloudBurst (previously Blue Cloud) • Safesforce.com • Facebook, Apple, PayPal and other cloud app platform providers Why is cloud computing such a hot topic? • Not entirely new but various factors have facilitated a recent surge in interest, including high-bandwidth, low-cost connectivity and the development of large server farms and virtualisation • In the current economic climate, cloud computing may be attractive as a means of: • achieving rapid outsourcing efficiencies • cost reduction / converting capex to opex • simplifying hardware and software maintenance • smoothing fluctuations in demand levels • delivering public sector services more efficiently, see eg.  Digital Britain and the G-Cloud  the Obama Administration’s apps.govChristopher Millard 2

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University of Sheffield, November 2010 Cloud Computing Contracts and Services What’s the popular take so far on cloud computing? “It’s stupidity. It’s worse than stupidity: it’s a marketing hype campaign” Richard Stallman (Founder of the Free Software Foundation) “If you believe the hype, cloud computing is the future. Hype aside, cloud computing is nothing new.” Bruce Schneier, writing in the Guardian, June 2009 “‘Cloud computing’ takes hold as 69% of all internet users have either stored data online or used a web-based software application” Pew Internet & American Life Project, September 2008 “The rise of the cloud is more than just another platform shift that gets geeks excited. It will undoubtedly transform the information technology industry, but it will also profoundly change the way people work and companies operate. It will allow digital technology to penetrate every nook and cranny of the economy and of society, creating some tricky political problems along the way.” The Economist, October 2008Christopher Millard 3

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University of Sheffield, November 2010 Cloud Computing Contracts and Services So is cloud computing ‘mature’ and is it ‘safe’? • Some vendors are major players with resilient service offerings backed by robust Service Level Agreements (SLAs) • Cloud processes may be more secure than local processing, especially for SMEs and individuals (and, history suggests, some governments!) • Plenty of cloud offerings are, however, provided by startups which may, or may not, prove to be reliable • Many cloud services, both consumer and business, are launched while still in development and are often provided long-term on an “as is” basis and may remain in ‘Beta’ for a very long time • Many services, again both consumer and business, are wholly dependent on third-party owned / controlled infrastructure • So … whether a particular cloud computing service arrangement is appropriate in a particular case will depend on many factors Some key concepts and terminology… • Infrastructure as a Service (IaaS) = delivery of servers, software, storage, etc as a fully outsourced service, typically billed on a utility computing basis (eg. Amazon Web Services) • Platform as a Service (PaaS) = web-based environment for developing applications (eg. Microsoft Azure or Force.com which provides a set of tools and applications for customising the Salesforce.com apps) • Software as a Service (SaaS) (eg. Oracle CRM on demand) • Storage as a Service (also SaaS!) = convenient way of storing / backing- up data online (eg. box.net) • Virtualization = many things but in this context mainly involves multiple “virtual machines” running on shared hardware via the Internet • Private, Community, Public and Hybrid CloudsChristopher Millard 4

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University of Sheffield, November 2010 Cloud Computing Contracts and Services Do things actually go wrong? What happened? [Ma.gnolia founder] Halff informed users that a specialist had been unable to recover any data from the corrupted hard drive. “Unfortunately, database file recovery has been unsuccessful and I won’t be able to recover members’ bookmarks from the Ma.gnolia database,” he wrote. With the benefit of hindsight… • It turns out that Ma.gnolia was pretty much a one-man operation, running on two Mac OS X servers and four Mac minis • Don’t assume that online services have plenty of staff, lots of servers and secure backups. If it matters, take due diligence + contracts seriously Major cloud players have substantial infrastructure… • Massive data centres are being built, often containing sealed shipping containers, themselves containing pre-configured servers: “The trucks back ’em in, rack ’em and stack ’em” (Ray Ozzie: Microsoft’s Chief Software Architect) • Huge requirements for power / cooling / connectivity • Google has patented a “water-based data center” - a system that includes “a floating platform-mounted computer data center comprising a plurality of computing units, a sea-based electrical generator in electrical connection with the plurality of computing units, and one or more sea-water cooling units for providing cooling to the plurality of computing units.”Christopher Millard 6

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University of Sheffield, November 2010 Cloud Computing Contracts and Services So, jus So just when you thought you had identified all the technical, commercial and legal risks associated with outsourcing and offshore data processing … …don’t forget maritime law …and that you can still meet real pirates on the high seas! Contracting in the clouds: ‘off the shelf’ arrangements • Many cloud service providers use ‘click-wrap’ terms of business • Such terms of business sometimes state, for example, that: • the service provider has minimal, or even no, liability for loss or damage caused by failure of the cloud computing service • the service may be modified or be discontinued without cause, without notice and without liability to users • subcontracting may be unrestricted • customers may have limited / no ability to recover data following termination of service • Depending on the circumstances, the enforceability of some of these terms may be subject to challenge (!)Christopher Millard 7

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University of Sheffield, November 2010 Cloud Computing Contracts and Services Who is responsible for data in clouds? “...you acknowledge that you bear sole responsibility for adequate security, protection and backup of Your Content and Applications. We strongly encourage you, where available and appropriate, to (a) use encryption technology to protect Your Content from unauthorized access, (b) routinely archive Your Content, and (c) keep your Applications or any software that you use or run with our Services current with the latest security patches or updates. We will have no liability to you for any unauthorized access or use, corruption, deletion, destruction or loss of any of Your Content or Applications.” Q. Will that be good enough? A. It depends what you are going to use the service for! What about disclosure of your data to third parties? Would you feel more comfortable signing up to this… “The Receiving Party [Salesforce.com] may disclose Confidential Information of the Disclosing Party [the customer] if it is compelled by law to do so, provided the Receiving Party gives the Disclosing Party prior notice of such compelled disclosure (to the extent legally permitted) and reasonable assistance, at the Disclosing Partys cost, if the Disclosing Party wishes to contest the disclosure.” … or this? “You authorize ADrive to disclose any information about You to law enforcement or other government officials as ADrive, in its sole discretion, believes necessary, prudent or appropriate, in connection with an investigation of fraud, intellectual property infringement, or other activity that is illegal or may expose ADrive to legal liability.”Christopher Millard 8

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University of Sheffield, November 2010 Cloud Computing Contracts and Services Whose laws apply if you have a cloud dispute? Choice of law speciﬁed by cloud provider… Number * US State: California (most common), Massachuse6s (Akamai), 15 Washington (Amazon), Utah (Decho), Texas (The Planet) English law, probably because service provider based there 4 English law, for customers in Europe / EMEA 4 Other EU jurisdicAons (for European customers): eg. Ireland (Apple), 2 Luxembourg (some MicrosoN services) ScoBsh law (Flexiant) 1 The customer’s local law 2 No choice of law expressed or implied, or ambiguous choice 3 (eg. “UK Law” for g.ho.st) * Number in each category is out of 31 contracts analysed by QMUL Cloud Legal Project h?p://www.cloudlegal.ccls.qmul.ac.uk/ Can you control where your data are stored in clouds? • It depends! • Some service providers can’t, for technical reasons, or won’t, for commercial reasons, let you choose (eg. Google… though see City of LA) • Other service providers are designing their clouds so as to offer customers a choice between ‘regions’ (eg. Amazon Web Services) • Other service providers, if asked, say they currently store customer data by default in the customer’s local region (eg. Decho Mozy Inc) • Geolocation may become a critical differentiator for customers concerned about where their data are stored (eg. because of disclosure risks associated with litigation or regulators) or subject to restrictions on data transfers (such as national rules based on Articles 25 + 26 of the DP Dir.) • An amorphous cloud may not be appropriate for the storage of personal data, eg. if you don’t know where the data will be stored and by whomChristopher Millard 9

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University of Sheffield, November 2010 Cloud Computing Contracts and Services Contracting in the clouds: custom deals • Although not generally advertised, major cloud vendors with standard contracts are prepared to go off piste if a deal merits it • One-off contracts are usually confidential but… • A high-profile negotiated deal, for which extensive documentation has been published, is the CSC, Google and the City of LA transaction. This includes provisions that appear to depart in significant ways from Google’s ‘standard’ position, including: “Google agrees to store and process Customer’s email and Google Message Discovery (GMD) data only in the continental United States. As soon as it shall become commercially feasible, Google shall store and process all other Customer Data, from any other Google Apps applications, only in the continental United States.” (cl. 1.7) Practical tips for managing cloud-related risks… • Read the contract! (inc. TOS, T&C, SLA, Privacy Policy, AUP, etc) • Consider due diligence questions like these… • Is the infrastructure multi-layered? • Where will your data be stored / processed / replicated? • Who is running the critical infrastructure? • How easily can third parties get access to your data? • What happens if your cloud provider / their provider) goes bust? • How easily could you move your data to another cloud service (or back to your own systems) and how long would it take? • How confident are you that you could regain control of your data without leaving behind copies and / or key metadata?Christopher Millard 10

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University of Sheffield, November 2010 Cloud Computing Contracts and Services Forecast: the outlook is complex and changeable! • The cloud computing industry is at an early stage of development • Putting data / processes into clouds may facilitate risk management and save money but it may also have unintended adverse effects • Physical location can remain highly significant in virtual environments and legal / regulatory obligations certainly don’t end when data are handed over to one or more cloud service providers • It may matter a lot who has control over, and access to, data in clouds • Some cloud services are much more sophisticated than others in terms of security (eg. encryption options) and facilitating compliance (eg. providing commitments regarding data location, if required, and support for audit, mandatory disclosure processes, etc) • It may take some time and effort to get regulators (privacy and others) comfortable with specific cloud arrangements • Cloud contracts may evolve rapidly in response to competitive positioning, customer demands and interventions by regulators and courts Thanks for listening! Any questions… http://www.cloudlegal.ccls.qmul.ac.uk/Christopher Millard 11